Tag Archives: business

Why do an MBA?

Surely that’s a dumb question to be asking myself right now. I had to answer it on the application. I’ve committed the money and time to it. I’ve even started the first course – Accounting and Financial Management.

That first course is looking to be as easy as I thought. Which on one level really frustrates me. Why am I paying to do a subject I am already unconsciously competent at? It’s a good way to ease into studying again after all these years.

Strangely I found myself wondering about some of my fellow students. They don’t seem to understand the broad accounting aspects of their businesses. Maybe it was me, but all my career I’ve been interested in the Profit & Loss Statements and Balance Sheets of my employers.

Back to the question at hand. Why do it? Career prospects? More money?

For me it the answer is to change my life. To understand business and industry with a new depth and rigour. To use to time to change my world-view and internalise my studies in a way I could not appreciate when I was an undergrad. My business interests are in fast-growth, entrepreneurial firms. That is where my MBA is leading, although I can’t say exactly where yet.

Channel Ten finally on Foxtel’s EPG

Channel Ten Australia has finally signed a deal to allow digital broadcast to Foxtel’s cable and satellite subscribers. Until now channels Ten and Seven has only been available on Foxtel cable as an analogue retransmission. This meant that Foxtel’s digital Electronic Program Guide did not list Ten’s or Seven’s schedule.

In the new media world not being in an EPG make you invisible. It doesn’t matter that I can scan while channel surfing, I rely on the description that pops up on screen or on the EPG. Until last year I would go online and look it up, but I finally got tired of that. So as a result my family watch precisely one (1) hour of channel Ten per week. We watch less channel 7.

What amazes me is that the management of these businesses obviously thought cutting a deal to be on Foxtel’s digital would not impact their ratings. Instead it allow the other Foxtel digital channels to capture eyeballs and forget about their programming. So the only way I discover their programming is to see their expensive advertising in other media.

My informal pub chat poll shows my household is not unusual. Foxtel subscribers love their remotes, their electronic program guides and their planners.  Media analysts counter that very few Australians watch Foxtel’s channels other than sport or movies. It doesn’t matter, enough of us have stopped watching Seven and Ten because it is not accessible.

Lesson: Do not get between your product and your customer.

Thankfully Ten is has now joined the party. Now seven needs to get over their C7 digital hissy fit and make their schedule available.

A&R Scandal: Tower Books’ Michael Rakusin Replies

Michael Rakusin, Director of Tower Books replied to Charlie Rimmer‘s letter. I’ve emailed a request to reproduce Michael’s email here, but in the meantime you can read it at Susan Wyndham’s Undercover blog. That way the conversation can allow trackbacks around the blogosphere.

I look forward to watching the fall-out in the industry over this. When a major market player decides to flex their muscle, they should make sure they are a big enough player. I suspect that at a claimed 18% of the Australian book retail market Angus & Robertson will find it is not enough to succeed.

Bunnings on the other hand does have enough market share. But more on that later.

Update Michael Rakusin has granted permission to reproduce his letter below Continue reading A&R Scandal: Tower Books’ Michael Rakusin Replies

Angus & Robertson Scandal: Demands cash from 40% of suppliers

Angus & Robertson letter to unprofitable suppliersAngus & Robertson sent a letter to 40% of their suppliers demanding cash payments and rebates as a condition of continued business. The scandal broke at Susan Wyndham‘s Undercover blog over at the Sydney Morning Herald, firstly in Bookshop chain puts bite on small publishers and then in more detail today A&R Dumps Books.

A friend describes it as “Bookselling, The MBA way”. This is bound to be one of the case studies I’ll use in my MBA.

Here is the text of the letter for the screen readers and the blind:

 

Angus & Robertson

30th July 2007

Michael Rakusin
TOWER BOOKS
Unit 2 / 17 Rodborough Road
Frenches Forrest
NSW 2086

Dear Michael

I am writing to inform you of some of the changes to the way we manage our business.

We have recently completed a piece of work to rank our suppliers in terms of the net profit they generate for our business. We have concluded that we have far too many suppliers, and over 40% of our supplier agreements fall below our requirements in terms of profit earned. At a time when the cost of doing business continues to rise, I’m sure you can understand that this is an unpalatable set of circumstances for us, and as such we have no option but to act quickly to remedy the situation.

Accordingly, we will be rationalising our supplier numbers and setting a minimum earnigs ration of income to trade purchases that we expect to achieve from our suppliers.

I am writing to you because TOWER BOOKS falls into this category of unacceptable profitability.

As a consequence we would invite you to pay the attached invoice by Aug 17th 2007. The payment represents the gap fro your your business, and moves it from an unacceptable level of profitability, to above our minimum threshold.

If we fail to receive your payment by this time we will have no option but to remove you from our list of authorised suppliers, and you will be unable to complete any further transactions with us until such time as the payment is made.

I have also attached a proforma for you to complete wand return to me, with your proposed terms of trade for our financial year commencing Sept 1st 2007. We have the following expectations:

  • All agreements contain a standard rebate, a growth rebate and a minimum co-op commitment to enable participation in our marketing activity.

  • Growth rebates activate as soon as our purchases with you increase by $1 on the previous year.

  • All rebates are paid quarterly for the previous quarter’s performance, you must make sure that your remittance, with calculations, is received by us by the 7th of the month following the preceding quarter. Any remittances not received by this date will attract a daily 5% interest charge.

I am also including a copy of our ratecard, and our marketing calendar, to enable you to begin planning your promotional participation now.

If you would like to discuss this with me in more detail, I am delighted to confirm an appointment with you at 1.00pm on Friday 17th August for 10 minutes at my offices at 379 Collins St, Melbourne.

Best Regards

[signed]

Charlie Rimmer
ARW Group Commercial Manager

Enc: A&R Ratecard
A&R Marketing calendar
Trading Terms Proforma
Invoice

Risks of serving on a board of directors

Directoship Risk was a question asked and answered by a LinkedIn connection of mine – the erudite Dr. Earl R. Smith II Executive Director of Longview. Actually Dr Smith covered more than risk, he laid down some Board of Directors – Basic Principles and included great perspectives on Director compensation. He also invited comments on the risks of serving on a board. I replied…

Keep detailed minutes of the meeting and if there is an error or over-simplification move an amendment before adopting the minutes of the previous meeting.

I am aware of a board currently trying to deal with a decision that was not properly minuted. An executive director overstepped her delegation but the minutes of the relevant meeting did not spell the limitations out. But every board member remembers the discussion and the limits placed on the delegation. When the deal came unstuck 12 months later the board have a major problem with their process.

Directors in common law countries have a duty of care to ensure they are adequately informed. Directors are expected to make their own enquiries to ensure they are receiving accurate information from the executives reports.

Some risks haven’t been mentioned.
Sarbanes-Oxley Act (SOX): Directors have significant and onerous obligations even if they are on the board of a small public company.

NEWS ALERT: SOX could apply even if your company is not domiciled in the USA. If you do business in the USA there is the potential to be within that jurisdiction.

This includes selling products to a USA domiciled customer especially if you sell FIS, CIF or C&F. As the risk and title of the goods does not pass until the goods are in the USA a case can be made that you are trading in the USA.

If your email or webhosting is in the USA an argument can be made that you have a US presense and are subject to SOX.

This is a stretch but ignore it only if you never intend to set foot in the USA. They’ve arrested hackers on tourist visas in the past. Google Jon Lech Johansen (DeCSS) and Dmitry Sklyarov.

Secondly boards of non-profits in receipt of government funding must not only be aware of their fiduciary duties (including duty of care and duty of loyalty, but also to avoid conflict of interest), there are laws for the jurisdiction or the funding body that carry civil or criminal penalties.

Thirdly in some jurisdictions your personal credit history/score includes an evaluation of the companies where you are a director. This happened to me when I agreed to attempt a turnaround that did not succeed. The company was liquidated and I still have to explain I was a non-executive director (sometimes banks even listen).

Insurance policies can be void in the event of fraud or malfeasance.

As a result of my experience I only serve on boards that I am passionate about. It also means I am more conservative in my board role than I am with my own money.

As for suing directors for breach of duty? If there is fraud or malfeasance then let the ambulance chasers loose. Sadly all other cases highlight the move of the Common Law world from one of responsibility to a world of blame and entitlement. An unfortunate by-product of the oversupply of lawyers.

Acquiring a private company

I’ve been negotiating the potential acquisition of a private industrial company. All the details are covered by a non-disclosure agreement, so I can’t provide a case study (yet).

At this point in time the deal is not going through once we asked the target what their price expectation was. The target has retained the services of an accounting firm and are obviously being fed strategy from their advisers. This is a good idea, except when the advisers queer the deal.

From my analysis, the target company is barely making money. From the accountants approach, they’ve produced a set of accounts with huge add-backs to support a high purchase price. Add-backs are expenses incurred by the owners/managers of a private company that an acquirer can reasonably expect not to incur. For example the all-expenses paid “Manager’s Conference” on the Gold Coast by the directors and their spouses, it’s just a legitimate perk that a public company would not continue.

So there is an initial dispute over the actual earnings of the business. I don’t see that as an insurmountable obstacle. That can be verified during the due diligence phase of the acquisition.

The accountant is pushing for a valuation of 5 times EBIT (Earnings Before Interest and Tax). Let’s assume we’re looking at a valuation around 3 times EBIT which is in line with typical family-owned businesses and business-broker transactions. So once we resolve the multiple, we determine the purchase price during due diligence.
What other flies are in the ointment? What if the family have debt that needs to be cleared out of the sale of the business? In that case discussions about multiples of EBIT are irrelevant. The debt needs to be addressed and that calls for a different set of solutions.

Additionally if I am correct and the business is not really making any money, we could acquire the assets in 6-24 months if the company goes broke. Not an ideal outcome as I’d rather have a going concern rather than a shell. However the risk of running out of cash is significant.

I don’t have enough information to determine this yet. I’ll update later once I’ve done some more research.

Theory of Constraints spelling

Yeah I misspelled Theory of Constraints in my rush to post earlier. I don’t normally spell it Thoery of Contraints.

I thought I’d add another point that I learned from The Goal. In business accounting Inventory is an asset, which normally means it is a good thing. However inventory must be insured, counted, protected and marketed. Inventory becomes obsolete. Inventory consumes working capital. You can go broke with inventory.

As an exercise, value your inventory at fire sale prices. Then realise that someone, somewhere in the world is offering a product that is a replacement for yours at a fire sale price.

Inventory is only an asset at the moment it is turned into cash – not sold, but when you actually get paid.

Theory of Constraints

I got a question on my mention of Theory of Constraints (TOC) in an earlier post.

As my factory production has reached capacity, my most critical goal is to introduce TOC into my production facility. I first heard of the Theory of Constraints in the book The Goal by Eliyahu M. Goldratt and Jeff Cox.

The TOC is based on the view that there is some essential limiter in a system, i.e. at least one bottleneck. Overall increases in production can only be achieved by increasing the throughput of that bottleneck.

The steps to implement TOC are:

  1. Identify the constraint (bottlenecks are identified by inventory pooling before the process)
  2. Exploit the constraint (increase its utilisation and efficiency)
  3. Subordinate all other processes to the constraint process (other processes serve the bottleneck)
  4. Elevate the constraint (if required, permanently increase bottleneck capacity)
  5. Rinse and repeat (after taking action, the bottleneck may have shifted or require further attention)

source wikipedia article on Theory of Contraints

I’ll provide updates here on how the process at my factory goes.

You can buy the book from Amazon

Deal with the Micro Manager

Over the Shoulder, micromanager wayA former CEO of mine was a micromanager. I knew this before I took the job as the company was a client for a couple of years. Socially, I like my boss and we’ve know each other for many years. I’d even call us friends.

Given my interest in entrepreneurship, I have strong feelings against micromanaging. Fool that I am I thought there was no way he’d try to micromanage me. Surely I was immune. Ha!

So I chaffed at the bit — I’d left lucrative contracts before when a client attempted such behaviour. I got stellar results: sales were up, gross margin was up, profit was up, costs were lower. I should have got all the freedom to run my division as I pleased.

But my boss comes from a retail background. I think retailers especially like to run things by the book. They love an operations manual which clearly spells out the detail of every step from opening in the morning to closing at night.

I then realised that it wasn’t his problem, it was mine. I try to deal with what is rather than what should be. Once I accept the reality I can start doing something about it.

Then I accepted I’m never going to change my boss. As a matter of fact until we worked together I liked spending time together. So how will I deal with this?

Understand the boss’s priorities. What are the top 5, 3 and 1 items for me to focus on? Reconfirm regularly to ensure they haven’t changed.

Use my communications skills. I am an excellent communicator. Start tracking the list of assigned tasks, negotiating deadlines that I can meet and renegotiating priorities as they change. This involves instigating planning discussions with my boss and organising my calendar to clearly show available resources.

Commit to frequent and regular updates. When I delegate to one of my team, I want to know if the task is on track and I want early warning if it’s leaving the rails. Other than that I don’t need the detail. The micromanager needs to know every step of every task. This means anticipating update requests but at the same time scheduling time in advance for progress briefings.

Document agreements. Followup verbal briefings, requests and agreements with an email to avoid confusion.

Micromanagers fear disorganisation and idleness. The best way to contain their excesses is to be organised. That’s tough as I am not a naturally organised person, but if I want the freedom to run my division I’ll need to meet the boss’s expectations. That’s what he pays me for.

Retail KPI’s – the germination

Price Tag by Sarah Williams Brisbane, QLD, Australia via http://www.sxc.hu/photo/480217I’m developing a series of KPI’s for a retail operation. They own nine garden shed outlets and don’t currently track anything. It’s late and I’ve got a pile of notes, but I’ll document the process here.

One of the key elements is avoid collecting useless data, and reward the collection of useful data that reinforces the corporate values, empowers the store managers and is an aid profitability through performance measurement.

Obviously the store managers are going to have a say in the KPI.